Sunday, 10 August 2014

Farmers involved in
specialist cropping, contract farming, block-cropping or diversification may need
to take a step back and consider how things are best structured to ensure
compliance with the new Basic Payment Scheme and Greening rules.

Diversification

Being a farmer with non-farming
interests does not of itself put you at risk from the ‘Active Farmer’ test.
Only businesses that operate so-called negative list enterprises are caught.
Those enterprises are airports, railway services, waterworks, real estate
services, permanent sports and recreational grounds.

The latest guidance from the
European Commission says that, as far as ‘real estate services’ is concerned, it
does not consider farmers who let out farm cottages on their farms as falling
into this category. The target is property developers and estate agents.

If your business does fall into one of the negative list
categories, you will have to jump through one of three hoops to qualify as an
active farmer. Two of these are admin-heavy income-related tests, but the third
– demonstrating that agriculture is a principal object of the business – should
be more manageable for businesses which have farming at their core. We await
further details from Defra about what evidence will be needed.

Specialist cropping

Specialist crop growers who depend on
taking arable land on rotation from other farmers can no longer ignore the
impacts of farm subsidies. What used to be done on a handshake
now needs to be documented. Parties need to make sure not only that the
agreement passes muster with the RPA inspector (e.g. with regards to responsibility
for cross-compliance and any environmental stewardship) but that it works between the parties. It is a commercial
agreement, not simply a box-ticking exercise. At the very least it needs to set
out what needs to be done and when, who is responsible for what, and what
happens when things go wrong.

The new definition of farmer
under the Basic Payment Scheme is helpful. As well as someone who grows crops,
a farmer is someone who keeps an area “in a state that is suitable for grazing or
cultivation without preparatory action going beyond usual agricultural methods
and machineries.” We are still waiting for final details from Defra but
most arable farmers who have crops on their land should be able to fulfil that
secondary definition.

JVs, contracting
agreements and the 3-crop rule

One of the biggest concerns
voiced by arable farmers is how Greening will impact where holdings which are
contract-farmed fall just above the 3-crop threshold. Equally, farmers who set up joint ventures to
increase efficiency by block-cropping their farms are concerned about how to
maintain that efficiency if each separate farm has to grow three crops again.

Share-farming may be a way forward. It will not work in every
circumstance, but for some it will make more sense for the business that bears
the greater part of the responsibility for managing Greening features to be BPS
and greening payment claimant.

Points to watch

Entitlement transfer deadlines – the first of these, with transfers
governed by the current SPS rules, is midnight on 19 October 2014. Any 2015 transfers
will be subject to the new BPS rules, including its active farmer provisions.

Changes to eligible land definitions – watch in particular the
distinction between arable and permanent crops for the purposes of calculating
Greening obligations. Some crops originally excluded from the permanent crop
definition for SPS purposes now fall under the permanent crop heading (e.g.
asparagus, raspberries, artichokes).

Non-agricultural use rules – as under the present regime, land that
supports a claim has to be eligible for the full scheme year, but with an
allowance for an element of non-agricultural use as long as the area is predominantly used for agricultural
activities. Defra has indicated that the rules are likely to be similar to what
we have now.

Principal objects of your business –if your business operates any of the
‘negative list’ enterprises, but agriculture is a principal object of the
business, make sure official documents say that (e.g. company objects /VAT
registration/annual accounts).

Distinction between BPS and Greening– one for the professionals, but BPS and
Greening are two separate payment schemes and both need to be addressed in
contracting, tenancy and land sale/purchase agreements.